Across the globe, organised watch dog functions have not prevented failures. The rating firms could not predict Lehman collapse, the auditors could not prevent Enron bankruptcy and human referees continue to make wrong decisions in sporting arenas.
Audit firms want consulting revenue, rating firms want revenue retention and the referees play role ( sometimes) in fixing matches. If you have seen the oscar winning documentary “Inside Job”, its a cess pool.
On the other hand, a number of sports have implemented technology to remove /reduce human judgement errors — take the example of 3rd eye view for LBW decisions in cricket. Or the camera close up view for in/out calls in tennis.
What If?
What If typical control failures are codified and control breaches are made public, after providing a window for correction?
Lets take an example.
The systemically important institution IL&FS in India which is an infrastructure lending organisation works on funding long term projects. The fact that it did that using short term money was a disaster waiting to happen. What if this control breach was automatically flagged by technology ( with access to company books of accounts) ? Would that have triggered a more prompt action preventing defaults ?
The checklists/controls used by auditors to assess a company’s financial health can be monitored by technology more assiduously than any human.
Any breaches of controls/thresholds are first highlighted to management for action and post a certain time window, made public by technology. Just as a tv viewer can make out whether a tennis shot is in /out, a common investor can clearly see how good is the company running.
While there could be many objections to this from vested interests, one cannot dispute the fact that technology enabled open data can help prevent disasters before humans do.
